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Business confidence up, but will it last?

26 Nov 2020, 04:13 GMT+10

After reaching an all-time low in the second quarter of the year, during the height of the Covid-19 lockdown, business confidence in South Africa seems to have picked up again, according to the latest RMB/BER Business Confidence Index (BCI) released on Wednesday.

The increase in the RMB/BER BCI since the second quarter has mainly been driven by retail, wholesale and new vehicle trade. It is, however, imperative that activity in sectors linked to the supply-side of the economy - the building and manufacturing sectors - catches up more strongly to help ensure that the upward trend in confidence lasts, according to Ettienne Le Roux, chief economist at RMB.

The BCI was at 5 index points in the second quarter, 24 in the third quarter and has now reached 40 in the fourth quarter. The fourth quarter survey was done between 5 October and 16 November among about 1 800 executives spread across the building, manufacturing, retail, wholesale and motor trade sectors. Confidence rose in all the sectors making up the BCI.

The new vehicle sector and the wholesale trade recorded the largest increases in confidence during the fourth quarter. Confidence among retailers and wholesalers jumped to 50 and 59 respectively, making them the first sectors in over two years to see confidence rising back into net positive terrain.

Sales volumes of food, groceries, electronics, furniture and building materials rose impressively, while that of clothing remained under pressure. Manufacturing confidence climbed from 22 to 31 due to noticeably better domestic sales as well as increased exports. Building confidence improved slightly (from 14 to 21), as both residential and non-residential building activity remained weak.

Out of intensive care, still in high care

Regardless of this improvement in business confidence sentiment, questions remain about its sustainability, according to Le Roux. It is possible, for example, that the relief respondents felt after having survived the trauma of the Covid-19-induced lockdown, combined with the sensation related to the general strength of the bounce back in the economy after the "re-start", inspired a sense of optimism above and beyond what can be explained by the fourth quarter improvement in activity alone.

"Although the surge in business confidence is encouraging, it only signifies an economy that's out of intensive care, and not out of high care," Le Roux says in a statement. "While the easing of lockdown restrictions in recent months has led to a resurgence in activity, the tempo of growth in 2021 and beyond remains highly uncertain."

He foresees that a durable recovery of the global economy, especially as the Covid-19 vaccine is rolled out, and continued high prices and strong demand for South Africa's mineral exports, as well as the resumption of international travel, will surely bolster the local economy.

Yet many risks remain. The strong rise in confidence among so-called consumer facing sectors could easily turn out to be temporary if once pent-up demand peters out. Poorer-than-expected Black Friday and festive season sales could also dent business confidence.

Uncertainties associated with special Covid-19 income support measures lapsing, is another potential sentiment dampener and, after significant layoffs in the second quarter, employment prospects remain bleak.

Source: News24

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